Inventories decline as US-China tensions threaten rebound

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NEW YORK / LONDON (Reuters) – Global stock markets fell on Monday due to fears that US-China feuds over the origin of the coronavirus epidemic would spark a new trade war, speculation that strengthened the dollar and caused raise gold prices.

The increase in risk aversion occurred as business surveys showed that activity by Asian and European factories in April was increasingly shrinking, worsening the outlook, government closings to contain the pandemic having frozen world production and reduced demand.

US Secretary of State Mike Pompeo said Sunday that there was “a significant amount of evidence” that the coronavirus had emerged from a Chinese laboratory, remarks that shocked investors although he did not contest the American intelligence agencies conclude that it was not of human origin.

An editorial in the Global Times of China said it was “bluffing” and called on the United States to present its evidence.

“This morning’s session is dominated by risk aversion trading, with investors weighing the negative consequences for global growth of yet another escalation in US-China tensions,” said Simon Harvey, currency analyst at the broker Monex Europe.

“The headlines for new tariffs and supply chain disruptions come at a time when expectations for global growth are already fragile,” he said.

IHS Markit’s final manufacturing PMI for the euro area fell to 33.4, its lowest since the survey began in mid-1997 and well below the 50-point line between growth and contraction.

A U.S. gauge released on Friday showed manufacturing activity plunged to an 11-year low in April.

The pan-European STOXX 600 index lost 2.26% while the gauge of MSCI stocks around the world lost 1.12%.

On Wall Street, the Dow Jones Industrial Average fell 195.57 points, or 0.82%, to 23,528.12. The S&P 500 lost 12.58 points, or 0.44%, to 2,818.13 and the Nasdaq Composite added 27.74 points, or 0.32%, to 8,632.69.

The DAX graph of the German stock price index is shown on the Frankfurt Stock Exchange in Germany on April 30, 2020. REUTERS / Staff

Top-tier European and US equity volatility indicators hit a two-week high.

Earlier, the largest index of MSCI Asia Pacific shares outside of Japan fell 2.5%, pulled by the Hang Seng in Hong Kong.

The dollar appreciated against most major currencies. The dollar index rose 0.163%, while the euro fell 0.51% to $ 1.0927.

The Japanese yen strengthened 0.09% against the greenback to 106.90 per dollar.

Gold prices also rose as investors sought safety. Spot gold added 0.5% to $ 1,707.26 per ounce.

Simon Black, chief investment officer of wealth management company Dolfin, said that investors were also adjusting their forecasts for the depth of economic damage the pandemic would inflict.

“It’s also the economic reality that is sinking,” he said, adding that a rebound in global equities of more than 20% from the lows reached in March was not likely to be sustainable .

GRAPH: Rebound – here

Coronavirus cases worldwide have exceeded 3.5 million and deaths have approached a quarter of a million, according to a Reuters count.

FILE PHOTO: The offices of the London Stock Exchange Group are seen in the city of London, in Great Britain, on December 29, 2017. REUTERS / Toby Melville

US crude oil recently rose 2.33% to $ 20.24 a barrel and Brent crude was $ 26.76, up 1.21% on the day.

The 10-year benchmarks fell for the last time by 1/32 for a return of 0.6415%.

Report by Herbert Lash and Julien Ponthus; edited by Jonathan Oatis

Our standards:Principles of the Thomson Reuters Trust.

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